From Non Confirmation to Symmetrical Triangle

An interesting conversation over at the website of one of my favorite technical analysts and cycles analysts, Tim Wood of Cyclesman.Info over the weekend.  For fans of cycles, Elliott wave and Dow theory, his Friday night pow-wows are very much worth making a regular part of your weekly market analysis prep.

Among the more insightful points in last weekend's conversation was a discussion of the symmetrical triangle or running triangle that had developed between November and the present.  What is interesting about the pattern - which is clear in the S&P 500 and the Wilshire 5000 - serves to underscore the indecisiveness of the Dow theory non-confirmation I noted last week in Market Moods.  

Symmetrical triangles, while typically continuation patterns in trends, fundamentally represent a balance between optimisim and pessimism, expressed as buying (things will be worth more in the future) and selling (thing will be worth less in the future) in the marketplace.  That balance, played out on the political stage by way of a battle between the President and his stimulus package and the aggressive resistance of the Senate minority, is likely to be resolved powerfully in one direction or the other and while there is much temptation to game the eventual direction ("yes we can" versus "the hell you say"), the magnitude of the move is such that those who enjoin later will probably not suffer much for their caution.

In any event, some selling early next week, as significantly overbought conditions are worked off, is almost inevitable.  It will be worth watching to see how far those who get the first move are willing to push their luck.

For now, I'm still betting on upside over the intermediate term.  A breakdown from the triangle - and confirmation with new lows in the Dow industrials - would represent a major reversal in the general good feelings the new incumbent has enjoyed during the transition.  It would be stunning to see a major reversal of that significance so early in the term of an otherwise significantly popular president.